Fairness and the Budget
It seems like someone in the Treasury has been reading Shiller and Akerlof's Animal Spirits . This Budget has a strong unstated theme of 'fairness' in the sense that the authors use it - as one of the fundamental psychological phenomena that they believe contribute to economic performance. Two behavioural experiments are useful in understanding the Budget and the reaction to it. The first is the ultimatum game . This has two players, Mary and John. Mary is offered £10 to share with John as she wishes. The catch is that whatever share she offers to John, he has the chance to accept or reject it. If he rejects it, neither player gets anything. In a perfectly rational world, Mary would offer John a penny and keep £9.99 for herself. He would accept the penny - it's better than nothing, after all - and both would get their money. But in practice, John never behaves like this. If Mary offers him less than about a third of the money, he normally rejects it - so both players lo...